Explain the concept of inflation.

Explain the concept of inflation.

Inflation refers to the sustained increase in the general price level of goods and services in an economy over a period of time. It is typically measured by the Consumer Price Index (CPI) or the Producer Price Index (PPI). Inflation occurs when there is an excess of demand for goods and services relative to their supply, leading to an increase in prices. This decrease in the purchasing power of money affects consumers' ability to buy goods and services, as the same amount of money can buy fewer goods than before. Inflation can have various causes, such as increased production costs, excessive government spending, expansionary monetary policies, or supply shocks. It is important for policymakers to manage inflation to maintain price stability and ensure sustainable economic growth.